Fairfax baseball caps at a Fairfax Financial Holdings Ltd. annual meeting in Toronto. (Photo: Norm Betts/Bloomberg)

Fairfax Financial Holdings has been awarded $31 million in connection with an alleged scheme to depress the company’s stock price by depicting it as the “next Enron.”

On Monday, a jury in Morris County, New Jersey, awarded Fairfax Financial and its subsidiary, Crum & Forster, $5.4 million in compensatory damages and a $5.5 million punitive award, following a six-week trial against hedge fund Exis Capital Management  and principals Adam Sender and Andrew Heller. The verdict follows a $20 million settlement reached Sept. 1 with another defendant in the case, investment fund Morgan Keegan & Co. of Memphis.

The suit by Toronto-based Fairfax Financial, the owner of a number of insurance companies, alleged that a group of hedge funds and analysts conspired to undermine confidence in Fairfax by disseminating false and misleading information about it to the company’s employees, shareholders and creditors. It claimed the defendants manufactured false accounting and business problems relating to Fairfax and that they sought to instigate investigations by providing false information to regulatory agencies.

The alleged conspiracy, which began in 2003, severely depressed Fairfax’s stock price, but in the first two months after the suit was filed in 2006, the company regained $1.5 billion in market capitalization, said Bruce Nagel of Nagel Rice in Roseland.

Nagel handled the case with Nagel Rice colleague Andrew O’Connor, as well as Marc Kasowitz, Daniel Benson and Michael Bowe, all of New York-based firm Kasowitz Benson Torres.

Fairfax Financial’s subsidiary, Crum & Forster, a Morristown insurance company, also was a plaintiff. Fairfax and Crum & Forster alleged in the suit that a group of hedge funds and analysts engaged in an effort to undermine confidence in Fairfax by disseminating false and misleading information about it to the company’s employees, shareholders and creditors.

The suit claimed the defendants intended to profit from the destruction of Fairfax by short-selling its stock or taking positions that would be profitable only if the stock’s price declined.

The jury found Monday that the plaintiffs were entitled to punitive damages against Exis, Sender and Heller. Jurors awarded $3 million in punitives against Exis, $2.25 million against Sender and $250,000 against Heller.

Following the compensatory damages phase of the trial, jurors had also made a slew of findings on Oct. 12. They found Exis had made false statements about Fairfax, Crum & Forster or both, that it had published false statements to a third party, had made these statements with malice and that the plaintiffs had lost business due to those statements. Jurors further found that Sender and Heller had made no false statements about the plaintiffs. The jury also found Exis participated in furtherance of a plan, but Sender and Heller did not. In addition, it found the plaintiffs had proven they were harmed by defendants’ wrongful conduct.

At trial, emails between the defendants and others showed that they conspired to depress the stock price for Fairfax and paid a “corporate operative” to help carry out the scheme, said Nagel. Another hedge fund defendant, SAC Capital Management, was dismissed from the case for lack of jurisdiction, but that ruling is on appeal, Nagel said.

Mark Werbner of Sayles Werbner in Dallas, who represented Exis Capital Management, Sender and Heller, said he expects his clients won’t have to pay the $10.9 million verdict because under New York law, which applies to the case, the $20 million settlement that was reached before trial will be credited against his clients’ liability. But Nagel says the issue of the credit is unsettled and will be decided in an upcoming proceeding.

Werbner also says entering punitive damages against his clients was improper because they were found not liable in the compensatory damages phase of the trial.

Werbner said he would also ask the trial judge in the case, Superior Court Judge Louis Sceusi, to throw out the verdict. If that relief is not granted, he plans to appeal, Werbner said.

Morgan Keegan was represented by Philip Sellinger of Greenberg Traurig, who declined to comment on the case.